Dunham Trust’s multi-generational trusts help advisors lock down accounts nearly forever. As advisors start looking to their own succession plans, nailing down management fees across generations has become a natural sell for the Nevada-based trust company.

Where some independent trust companies have had trouble competing for new accounts, Dunham Trust has found a way to woo increasingly finicky advisors and add $300 million to its platform in the process.

The secret boils down to a 40-second proposition, says CEO Jeffrey Dunham, who runs the $1.2 billion trust company as part of a financial supermarket that includes its own mutual fund company and FINRA-registered broker-dealer.

“If investment advisors paused for 40 seconds and asked their best clients this question, I predict the results will be very successful 80% or 90% of the time,” he explains.

“After that, the only thing left to do is to find the right trust company,” he adds.

Based on its growth rate, Reno-based Dunham has evidently been the right partner for a lot of advisors out there.

Back in 2009, when the industry was still picking its way out of the credit crash, Dunham had $900 million in client assets. Now, the company boasts north of $1.2 billion.

Not counting M&A, Dunham has posted compound organic growth of 16% a year — twice the average in its size bracket and easily triple the performance of slightly smaller trust companies, according to the latest issue of Bernard Garbo’s Trust Performance Report.

The next best thing since…directed trust

Jeffrey Dunham tells us he expects his AUM to double in the next several years.

What’s feeding the excitement, he says, is that the company’s next-generation directed trust arrangements lock down long-term relationships for advisors and clients alike.

“Everyone is talking about directed trust like it’s the best thing since sliced bread,” he explains.

“Directed trusts are nice and we do work with directed trusts, but for advisors, the bigger story in my opinion is capturing customer relationships beyond the current generation.”

Traditional directed trusts have become a hot property with advisors who want to help clients transfer property into a trust without sending their biggest accounts to a potential competitor.

With a directed trust, the advisor retains control of how the assets are invested, as well as the associated management fees, while the directed trust company sticks to the work of running the trust itself.

Thanks to that simple premise, directed trust has roughly doubled its share of the $1 trillion trust business over the last decade and is now a $360 billion piece of the pie, according to data from the Spectrem Group.

However, Dunham notes, although directed trust keeps the assets under an advisor’s control as long as the original grantor is alive, the beneficiaries get the power to reassign management duties after that — and there’s nothing stopping them from picking someone new.

“What happens is that the matriarch passes and the advisor gets a letter from the beneficiary’s advisor thanking him or her for doing such a good job for Mrs. Jones, but here are the wire instructions for delivering the assets,” he says.

When and if advisors get that letter, there’s not a thing they can do about it.

The “direction” in a directed trust only means that the grantor or beneficiary can “direct” the trust to obey a given advisor, not that a given advisor has any power in his or her own right.

Making directed trust multi-generational

The solution is to insert the advisor into the trust documents as a successor trustee, Dunham says.

That’s where that 40-second conversation with an 80% to 90% success rate comes in.

“It’s a simple question to ask the clients with whom you have already spent years building a strong rapport,” Dunham says.

“That question is, ‘Do you want to set us up as the advisor a successor trustee needs to work with? We’d be happy to continue to be involved when you’re gone, if that’s what you want.”

From there, as long as you’ve got the right trust company, the assets can theoretically travel with the advisor for generations — up to 365 years, given Nevada’s dynastic trust rules — and keep generating fees.

And because Dunham already counts incentive trusts — which incorporate restrictions on beneficiary behavior — among its specialties, building that twist into directed trusts was a natural play for the company.

His team is happy to go into greater detail on how the twist on dynastic directed trust works. Click here to contact them.

Succession planning for planners

Granted, not many advisors plan on living that long, but that’s the genius of this twist on the directed trust.

If the trust assigns management rights in perpetuity to the advisor or his or her professional heirs, then those fees become annuitized income to count on for decades if not centuries.

And in a world where the average RIA principal is turning 55 this year and thinking about retirement, that kind of annuity income can double or triple the value of your business when you sell.

Even though M&A activity in the advisory world has gone through the roof, deal valuations have favored sellers who can demonstrate that their business can keep making money without them.

Remember, a purely commission-based RIA maybe goes for 1.3 times annual production, while a book that generates recurring fees can go for 3 times revenue or more. Show a potential buyer that the fees can theoretically keep accruing for centuries, and your business looks even more attractive than ever.

And in the final analysis, why not ensure that whoever you hand-pick to take over your practice can count on these accounts down the road?

“Advisors have done a good job creating a strong relationship with the matriarch or patriarch over the years, but a poor job suggesting that that role should continue after the first generation dies,” Dunham says.

Scott Martin, contributing editor, The Trust Advisor Blog. Steve Maimes contributed to the research.

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